The Bank Bumiputra Commerce must decide whether to replace its computer system with a new model. BBC forecast net before-tax cost savings from the new computer over five years as given below (in $00). BBC has a 12 percent cost of capital, a 35 percent tax rate, and uses straight-line depreciation. (Year 1:$350, Year 2:$350, Year 3: $300, Year 4:$300, Year 5: $300).

a) The new computer has a $1 million price tag. In addition, the old computer can be sold for $450,000. If the old computer originally cost $1.25 million and is three years old (depreciable, not economic life is five years), what is the net investment required in the new system? Assume the both computers are being depreciated to a zero savage value.

b) Estimate the incremental operating cash flows associated with the new system.

c) If the new computer's salvage value at the of five years is projected to be $100,000 should it be purchased?

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